Abstract

This study examined the impact of government spending, economic growth, trade, foreign aid and foreign direct investment on poverty reduction in Africa. the study covered the period from 1974 to 2013 using annual data from the World Bank and the United Nation Development Program. the study used GMM technique in order to estimate the impact of the mentioned variable on poverty in Africa. the empirical results suggested that foreign direct investment, economic growth, trade and government spending on education and health positively and significantly related to the poverty reduction during the period of interest, while foreign aid negatively contributed to the poverty reduction in Africa.

Keywords

Introduction

Africa is a resource-rich' continent but most of Africans are poor,
in fact, poverty in Africa is one of the serious problems that facing the
region. Moreover, certain African people are facing the poverty, which
refers to lack of the human needs such as food, health care, education,
safe water and electricity. For instance, around 76% of the poorest
countries in the world are located in Africa, for example Liberia,
Somalia, Ethiopia and Zimbabwe. In addition, Democratic Republic of
Congo, which is the second biggest country in Africa, has been ranked
as the poorest country in the world. The Gross Domestic Product of
Democratic Republic of Congo was around $395.25 in 2013. Also, in
2013, the World Bank stated that, the top 10 countries with the highest
number of population which living in extreme poverty were all located
in Africa. The definition of extreme poverty, according to the World
Bank, is living on around $1.3 or less in each day. Most importantly,
in 2010, more than 410 million across African countries were living
on $1.3 or less, those people were accounted for around 48.4% of the
African population in 2010. Pushing this further, the World Bank
stated that one in three people, living in Africa, are suffering from
undernourishment [1].

In the same line, the United Nation's Food and Agriculture
Organization (FAO) has reported that around 240 million African
people, who accounted for around 31% of the African population,
were undernourished and hungry in 2010. The previous percentage
is the highest percentage across all the regions around the World.
Furthermore, the United Nation' Millennium Project has reported
that, around 41% of the African people might not regularly get foods
and medical care. Also, around 79% of the African population relies
on dung, wood, charcoal and such biomass products in order to cook,
this because of that, around 590 million in Africa, have no access to
electricity. Moreover, around 38% of the people who have lack access
to the safe water are all located in Africa, which equal to around 737
million African people. The United Nation Millennium Project stated
that around 49% of the people in Africa suffering from the water related
diseases such as cholera and malaria, as a result, not less than 1 million
African people die every year because of the malaria, most of those
malarial deaths are African children. In fact, those malarial deaths in
Africa are accounted as 90% of all worldwide malarial deaths, and most
of them are children below five years old.

The United Nation Millennium Project reported that, at least every
30 seconds, a child dies due to the malaria or around 3,000 daily in
Africa. Besides, more than 80% of the women in African have no access to the education; as a result, the uneducated women in Africa are more
likely to get affected by AIDS and less likely to immunize their own
children. Meanwhile, those African children have only 40% chance of
survival, this because of the uneducated mothers. It is noticeable that,
African uneducated women are around 230 times more likely to die
during the giving birth or and during the pregnancy than other women
around the World. In fact, one in each 16 women in Africa will die
during the giving birth, meanwhile, only one woman in each 4,000
women around the World will.

Figure 1 shows the human development index of Africa compared
to East Asia and Pacific, South Asia and Latin America. This index is a composite index measuring average achievement in three basic
dimensions of human development, which are health, education and
standard of living. The higher value of the index reveals an improvement
in the human development in a country or in a region and the lower
value implies a decrease in the human development. The figure shows
that Africa has the lowest human development index among the
regions; the index’ value increased slightly over years. This index shows
that; in term of health, education and the standard of living, Africa is
the poorest region across the World regions.

Figure 1: Human Development Index.Source: United Nation Development Program, 2015.

Literature Review

The education of women, in Africa, is particularly critical.
Education, and particularly literacy, contributes to health gains, lower
fertility, improved infant survival, higher labor productivity, as well
as more rapid GDP growth. But also makes a contribution to social
integration through equipping individuals for participation in all
aspects of social, political, economic and cultural life and, thus, reduce
the poverty [2]. However, education by itself doesn’t reduce poverty
but through things that might reflect increases of individuals income
and wealth. Also, education level of individuals has strong impact on
the households' welfare and that higher level of education has relatively
larger impact and increasing benefits for individuals' social activities
[3]. Besides, skills obtained through education tend to enhance the
households' income and reduce their poverty, not only this, but also
will improve their health and increase the individuals' productivity [4].

The role of agriculture in the economic development remains
a debated issue. The contribution of the agricultural sector into the
poverty reduction is depends on the sector's performance and on the
sector growth. Also, it enhance the economy through indirect way, its
indirect impact is through growing the other sectors in the economy
such as the industry' sector. However, it depends on how deep the poor
people are participating on the sector performance and how big the
sector’s size in the economy. However, agriculture has a positive and
significant impact on the poverty reduction in the poorest areas, it
contributes significantly to the economic growth and all development
activities and therefore reducing the poverty [5]. However, to reduce
poverty, increasing the employment among the poorer areas would
help in increasing individuals' income and, thus, poverty [6]. Pushing
this further, more farm activities would increase the farmers' income
and thus help in reducing the poverty rate of those farmers [7]. On
other hand, industry sector play an important role in term of poverty
reduction, not only by creating more jobs but also by its positive
spillover effects on the poor areas and societies [8]. Moreover, financial
development has a long-run positive significant impact on poverty
reduction, its impact through attracting saving and relocating it in
productive investments in the poor places [9]. However, poverty
remains a serious problem that facing African countries, in this regard,
the studies that focus on this issue in Africa are rare.

Fiszbein et al. [10] argue that, the social protection is a key element
to start fighting the poverty across the World; they concluded that social
protection is positively contributes to the poverty reduction. Further,
they resulted that more than 150 billion people globally have been
prevented from falling into poverty because of the social protection
programs. However, they argue that if all poor countries adopted the
best efficiency achieved in the World, they will not be able to fill the gap
of the poverty through the social protection. Most importantly, recent
studies suggested that economic growth, FDI, agriculture, industries
and social protection would decrease the poverty rate among the
poor countries [11-13]. However, those studies did not go through government spending and its impact on poverty reduction, thus, this
point needs more investigation to check whether government spending
would reduce poverty or not.

Data, Theoretical Foundation, Empirical Model and Methodology

Data

To estimate the impact of economic growth, trade, foreign direct
investment, foreign aid and government spending on poverty reduction
in Africa, we collected the related data from World Bank and United
Nation. The study used annual data covered the period from 1974 to
2013. Table 1 shows the data description such as units of measurement
and data sources.

Variable

Description

Measurement

Source

GDP

Real GDP

$ Billion

WDI, World Bank

PEE

Public expenditure on education

% of GDP

WDI, World Bank, African Union

PEH

Public expenditure on health

% of GDP

WDI, World Bank, African Union

FDI

Foreign direct investment

$ Billion

WDI, World Bank

HDI

Human Development index

Index

United Nations Development Program

TR

Trade Openness

% of GDP

World Bank

FA

Foreign Aid

USD Billion

World Bank

Table 1: Data Description.

Theoretical foundation

The definition of poverty has been viewed by different schools of
economic thought. Starting from the classical and the neoclassical
definition, through the Keynesian or neo-liberation thinking. All those
theories have brought poverty to the forefront of the policy agenda,
beside the most recent theories. The definitions of poverty adopted by
pre-20th century economists already distinguished the ideas of relative
and absolute poverty. Rowntree was innovative in stressing a ‘cycle
of poverty’. Among recent economists, Sen is noteworthy in looking
beyond narrow monetary- based measures of poverty, while Townsend
highlighted the variety of resources needed to escape poverty1.
Meanwhile, the World Bank uses not only monetary measures of
poverty but also context- specific measures applicable to different
countries’ conditions. The European Commission (and the UK) links
material resources and outcomes to social exclusion (e.g. poverty and
social exclusion may preclude the affordable use of energy). The United
Nations extends the concept of poverty to include lack of political
participation and discrimination. However, classical traditions view
individuals as largely responsible for their own destiny, choosing in
effect to become poor (e.g. by forming lone-parent families). The concept
of ‘sub-cultures of poverty’ implies that deficiencies may continue over
time, owing for example to lack of appropriate role models, and that
state aid should be limited to changing individual capabilities and
attitudes (i.e. the laissez-faire tradition). Neoclassical theories are more
wide ranging and recognize reasons for poverty beyond individuals’
control. These include lack of social as well as private assets; market
failures that exclude the poor from credit markets and cause certain
adverse choices to be rational; barriers to education; immigrant
status; poor health and advanced age; and barriers to employment for lone-parent families. Most importantly, looking at the classical
and neoclassical approaches together, their main advantages reside in
the use of (quantifiable) monetary units to measure poverty and the
readiness with which policy prescriptions can be put into practice.
They also highlight the influence of incentives on individual behavior
as well as the relationship between productivity and income. Criticism
of these approaches highlights their overemphasis on the individual
(without, for instance, taking into account links with the community)
and the focus on purely material means to eradicate poverty. Even
though the neoliberal school led by the new-Keynesians also adopts
a money-centered, individual stance towards poverty, the importance
assigned to the functions of the government allows for a greater focus
on public goods and inequality. For instance, a more equal income
distribution can facilitate the participation of disadvantaged groups of
society in the type of activities that are deemed essential under broader
notions of poverty. On the other hand, new-Keynesians are in line with
neoclassical economists in their belief that overall growth in income
is ultimately the most effective element in poverty removal. Publicly
provided capital (including education) has an important role to play,
with physical and human capital believed to be the foundation for
economic prosperity. Unlike the classical approach, unemployment,
viewed as a major cause of poverty, is largely seen as involuntary and in
need of government intervention to combat it. Excessive inflation, high
sovereign debt and asset bubbles are other macroeconomic factors,
besides weak aggregate demand, believed to cause poverty (E Philip
Davis and Miguel).

From the above, poverty is a result of individuals, society and
government failure. However, the more distribution of the public goods
such as education and health may result in more poverty reduction.
Following the theoretical thinking of the above motioned economists
and the empirical work of [14] and many others, this study will include
economic growth, trade, FDI, government spending on education and
health in the model to examine their impact on poverty reduction in Africa.

Empirical model

To estimate the impact of economic growth, foreign aid, trade and
foreign direct investment on poverty reduction in Africa, the study uses
the following formula:

Where HDI is the human development index (poverty), FA is the
foreign aid, FDI is foreign direct investment, GDP is economic growth,
TR is trade openness, GS is government spending on social activities
and μ is the error term; i refers to the country (i=1,….,N) and t refers
to the time period (t=1,…t). ɞ, O’0, O’1, O’2, O’3, and O’4 are the slope
parameters to be estimated which are expected to be positive.

Equation (1) demonstrates that poverty reduction which proxied
by human development index (HDI) is a function of foreign aid (FA),
foreign direct investment (FDI), economic growth (GDP), trade
openness (TR) and government spending in the social sector (GS).
The data regarding the human development index obtained from the
United Nation’ development program, to estimate Equation (1) the
study uses the generalized method of moments (GMM).

Methodology

This study will use the Generalized Method of Moments (GMM)
to estimate the impact of economic growth, foreign aid, foreign direct investment, trade openness and government spending on education and health. In econometrics, the generalized method of moments
(GMM) is a generic method for estimating parameters in statistical
models. Usually we apply (GMM) for semi-parametric models, where
the coefficients of interest is finite-dimensional. Besides, the full shape
of the data's distribution function may not be known, and therefore the
maximum likelihood estimation is not applicable. The method requires
that a certain number of moment conditions were specified for the
model. These moment conditions are functions of the model parameters
and the data, such that their expectation is zero at the true values of
the parameters. The GMM method then minimizes a certain norm of
the sample averages of the moment conditions. The GMM estimators
are known to be consistent, asymptotically normal, and efficient in the
class of all estimators that do not use any extra information aside from
that contained in the moment conditions. One of the GMM’s features
is the moment conditions increase with the time. Thus, the Sargan
test performed to test the over-identification restrictions. There is
convincing evidence that too many moment conditions introduce bias
while increasing efficiency. Therefore, it suggested that a subset of these
moment conditions should be used to take advantage of the trade-off
between the reduction in bias and the loss in efficiency [15] and the
references cited there. Most importantly, GMM also eliminates any
endogeneity that may be due to the correlation of these country specific
effects and the right hand side regressors. The moment conditions
utilize the orthogonality conditions between the differenced errors and
lagged values of the dependent variable.

Econometrics Results

Table 2 reports the descriptive statistics of the variables used in this
study, which are growth domestic products, trade openness, foreign
aid, foreign direct investment and government spending on education
and health.

Variable

Mean

Std. Dev.

Min

Max

Observations

GDP

11221

290

22

369000

N=2000. n=50. T=40

FDI

235

821

-323000

1165000

N=1981. n=5. T=40

TR

74.33

42.13

6.32

566.11

N=2000. n=50. T=40

FAID

365

543

-12.4

11432

N=1995. n=50. T=40

PEE

4.88

2.11

0.11

45.12

N=1999. n=50. T=40

PEH

3.01

1.33

0.03

8.76

N=2000. n=50. T=40

Note: GDP, FDI and FAID are in $ billion.

Table 2: Descriptive Statistics.

The dynamic GMM results reveal that the lagged dependent variable
positively and significantly related to the current value of poverty rate
(HDI). Moreover, the impact of foreign direct investment, government
spending on health and government spending on education on poverty
reduction has found to be positive and statistically significant. In
contract, the impact of foreign aid on poverty reduction in Africa is
negative and statistically significant, however, the impact of trade
openness and economic growth on poverty reduction are positive and
statically significant impact in Africa in the time (1974 to 2013).

The results show that the poverty rate in Africa highly depends on
the past value of the human development index (HDI), which suggests
that the more human development the less poverty in the continent.
Human development focuses on improving the lives people lead
rather than assuming that economic growth will lead, automatically,
to greater wellbeing for all. Income growth is seen as a means to
development, rather than an end in itself. Thus, any increment in the
human development index reflects a reduction in the poverty rate.

For instance, human development is about providing the best
life style to the people and giving them more freedom to live the lives
they value. In fact, human development aims to develop the people’s
abilities and, of course, giving them the chance to use these abilities.
For example, educating a girl will build-up her skills, however, it
is useless if she couldn't get a job, or her skills does not match the
requirements of the domestic labor market. Nevertheless, there are
three foundations for the human development concept, which are to
live a healthy, creative and long life, to have a right and appropriate
education, and to have an honorable, respectable and suitable standard
of living. Moreover, there are many other important things, especially
those things related to creating the favorable conditions of the human
development. Therefore, if the basic needs of the human development
are achieved, then this will open up adequate opportunities other
aspects of the life to be improved. From this end, the results reveal
that the improvement in human development index will lead to more
decrement in the poverty rate in the region.

Figure 2 shows the dimensions of human development and the
components of the human development index, it shows that an
improvement in the long and healthy life, knowledge and decent
standard of living are directly enhancing the human development in
a country or a region. Further, the figure shows that, participation in
political and community life, environmental sustainability, human
security and rights and gender equality are conditioning the human
development in a community.

Figure 2: Human Development.Source: United Development Program, 2015.

Thus, the results suggest that removing the conditions of the
human development and improving health, education and achieving
high economic growth will help in the matter of the poverty reduction
in Africa. Pushing this further, African governments are advised to
invest more in the term of health human capital and education human
capital to enhance the human development in the region and reduce
the poverty rate among all African countries.

Moreover, the results show that government spending on education
and health have important role in reducing the poverty rate in the
region, this is not only reflects the importance of human development
in reducing the poverty- but also- reveals that the significance role of the
government sector in term of poverty reduction. Up to my knowledge,
educated and healthy people are more likely to have a good job with a
high salary, thus, the more investment on education and health the less
poverty as confirmed by the results [16].

Governments' spending on social activities is not only reducing
poverty in a direct way- but also- indirectly through other channels. The direct effects arise in the form of benefits the poor receive from
the employment programs that which directly targeted the poor areas
in a country. The indirect effects arise when government investing in
infrastructure, agricultural research, health and education of the poor
areas. In fact, the relationships between health, education and poverty
reduction are more complex than what they look, thus, the share
allocated to the education and health in most of African countries
doesn’t recognize the role of these services on the poverty reduction
in the continent.

Public spending on health is particularly important in Africa
because of the poor's inability to pay for the health services and because
insurance and other risk-sharing approaches to financing catastrophic
costs are generally not available, even wealthier African households
cannot afford catastrophic care. Without an insurance market, private
for-profit providers are generally limited to the provision of simple
clinical services to urban population who can pay out of their pocket.
For the near future, public expenditure will function as insurance for
both rich and poor households in the region, and thus, will help in
reducing the poverty rate across African nations.

Most importantly, increasing government spending on social
activities is not only explains how the poverty will be reduced, but also
allocating that spending in the right areas will- more effectively- help
in the poverty reduction. In addition, targeting the poorer places, inwhich
the people are extremely poor, by allocating more government
spending and build new schools besides improving the existing ones
will result in more school attainment. Hence, the impact of government
spending on poverty reduction is small, thus, the effectiveness of
allocation the spending will lead to higher impact on poverty reduction.

Pushing this further, Castro et al. found that government subsidies
in Africa are poorly targeted the poor households, and indeed favors
those who are better off. Besides, improving targeting to the poor
involves not simply rearrange the public subsidies, but also increases
the chances that the poor access these services, and thus reduce the
poverty rate. According to official website of African Union 2015, yet
the African' governments do not recognize the importance of public
spending on education and health in reducing the poverty. From this
end, the study recommends that more government spending in social
activities be required to improve the human development, and reduce
the poverty among the region.

Moreover, the results reveal that, foreign direct investment have
had a positive significant impact on poverty reduction in Africa, this
finding is in line [13]. Since the net flows of foreign direct investment
in Africa has increased significantly over the past years and the poverty
rate slightly decreased, thus, FDI is positively related to poverty
reduction in the continent.

It’s now widely accepted that the benefits accrued from FDI might
include adopting of the new and advanced technology, creating new
jobs opportunities, through human development, enhancement of the
international trade, encourages the domestic investors, and increasing
tax revenue (Jenkins et al. World Bank, 2015). All these benefits will
not only contribute to economic and employment development, but
also will help in the issue of the poverty reduction. The positive impact
of FDI on poverty reduction in Africa might be directly or indirectly.
The indirect impact of FDI on the reduction of poverty is through the
economic growth that results in improving the standards of living
because of the increase in gross domestic products in the country,
improving the technology and increasing the productivity, as well as
enhancing the economic environment. The direct impact of FDI on poverty reduction through the job creation caused by FDI, further, this
will not only increase the income of individuals- but also- more social
development through more health insurance and human development.

Most importantly, foreign investments create more jobs for local
poor African people, besides that, the health protection offered by the
foreign investors to their local labor is the key in reducing the poverty
in the region. Most of African people are poor which result in their
limited abilities to get medical treatment when needed neither for
themselves nor for their families. In this regard, the health insurance
that provided by foreign investors to the local poor labors will not only
improve their health conditions, but also will result in more available
income to be used in other life needs [17-19].

Moreover, foreign direct investment generates more value added
to the economy, and thus, increases the tax revenue of the local
governments. Therefore, the governments get additional financial
sources in order to finance their spending, either spending on social
activities such as health and education, or other spending types.
Further, increases the public spending on health and education will
lead to more reduction in the poverty rate as the impact of government
spending on education and health on poverty reduction is positive and
statistically significant as seen in Table 3.

Variable

Coefficient

HDIit-1

0.872***(0.206)

lnFA

-0.025*(0.009)

lnFDI

0.027***(0.009)

lnTR

0.0004**(0.0002)

lnGDP

0.029*(0.015)

lnPEE

0.162***(0.039)

lnPEH

0.074*(0.043)

Constant

-0.245(0.310)

Sargan test (p value)

0.2295

AR1: p-value

0

AR2: p-value

0.7651

Notes: ***, ** and * denote significance at the 1%, 5% and 10% levels, respectively.
Between ( ) are the standard errors.

Foreign direct investment has positive spillover effects on most
of the sectors in the host economy such as importing advanced
technology, adopting new protection process and integration with
other manufacturing [20,21]. Form this end, those spillovers will help
in developing other sectors and thus create more jobs in these sectors,
this will not only help in employing more local poor people but also
will lead to more economic growth in the economy. Besides, the more
employment generated in those sectors, will therefore, and reduces the
poverty rate among the African countries.

This finding advises African governments to introduce policies
that encourage the current foreign investors and attract more foreign
flows to come in the region. Also, facilitating doing business for foreign
investors, removing barriers that facing those investors and reducing
the total tax rate will generate more foreign direct investment into the
continent. Thus, more spillover that is positive effects from the FDI to
the economy will take place, and enhances and integrate with other
manufacturing in the African countries.

In the same line, economic growth has a positive significant impact
on poverty reduction in the region. In fact, the more economic growth
in the continent the less poverty, this reflects the importance of the national income, in a country, to finance the social activities and to
develop other sector in the economy. Pushing this further, economic
growth would give more financial sources for African governments that
facilitates achieving the targets set by the governments, and therefore,
reduce poverty rate. Gohou and Soumare argue that African countries
need to invest more on the social sector in the region; they concluded
that poverty in Africa could be reduced only by spending and more
spending.

However, economic growth would not only reduce poverty in a
direct way, but also through other development activities. In fact, when
African governments gain more economic growth, then they start
investing in other sectors in the economy such as invest in developing
infrastructure, agriculture and industrialization. Thus, those projects
will generate more jobs for the local African people, this will not only
reduce poverty by increasing the income of those local people -but
also- through the health insurance and other benefits [22]. In this
regards, African policy-makers should introduce policies that expand
the economy and generate more job opportunities for the good of
African citizens.

Moreover, trade has significant role in reducing the poverty rate
among African countries; in fact, the results suggest that the more trade
the less poverty rate in the continent. In general, African economy
depends on trade of good and services; this reflects the importance of
trade in reducing poverty rate in the region. According to the official
website of African Union 2015, more than 50% of African people are
traders while the rest are consumers, however, the more trade the more
job opportunities for the local people in the domestic ports or the
airports in African countries.

Most importantly, the more trade lead to more export and more
import as well, which generate more value added to the economy and
increase the revenue of the governments in Africa. This will lead to
more government spending on the social activities such as education
and health, and thus, reduce poverty rate in the continent [23-25].
Moreover, people who work at ports or airport are richer than those
in other sectors or companies (African Union, 2013), this reflects that
trade sector in African countries is very important in reducing poverty
among the region. However, trade in Africa needs more organizing
and developing to start contribute more positively in term of economic
development and poverty reduction.

In contradict, the results found that, foreign aid has negative and
statistically significant impact on poverty reduction in Africa. For
instance, Helping Africa is a noble cause, but the campaign has become
a theater of the absurd- the blind leading the clueless. The record of
Western aid to Africa is one of abysmal failure. More than $500 billion
in foreign aid-the equivalent of four Marshall Aid Plans- was pumped
into Africa between 1960 and 1997. Instead of increasing development,
aid has created dependence. The budgets of Ghana and Uganda, for
example, are more than 50 percent aid dependent (World Bank, 2015).

The more aid poured into Africa, the lower its standard of living.
Per capita GDP of Africans living south of the Sahara declined at an
average annual rate of 0.59 percent between 1975 and 2000. Over that
period, per capita GDP adjusted for purchasing power parity declined
from $1,770 in constant 1995 international dollars to $1,479 (United
Nation Development Program, 2015). The evidence that foreign aid
underwrites misguided policies and feeds corrupt and bloated state
bureaucracies is overwhelming.

Foreign aid given to support reform in Africa has not been successful either. According to the United Nations Conference on
Trade and Development, “Despite many years of policy reform, barely
any country in the region has successfully completed its adjustment
program with a return to sustained growth. Indeed, the path from
adjustment to improved performance is, at best, a rough one and, at
worst, disappointing dead- end. Of the 15 countries identified as ‘core
adjusters’ by the World Bank in 1993, only three (Lesotho, Nigeria and
Uganda) are now classified by the IMF as ‘strong performers (George
Ayittey).

In my opinion, aid can only go so far. Aid can only provide
relief, but it does not provide economic transformation. Economic
transformation in the long-term, where people learn skills, where they
earn high and rising standards of wages and of living, comes from locally
run, locally owned businesses. And that’s what’s been missing from the
development discussion in Africa. It’s when you have a local business
that’s thriving, that’s employing people that are enabling employees
to send their kids to school, to change their habitat, to get the health
benefits and so on: this is what really transforms communities.

Moreover, Aid has kept Africa behind or Africans behind, in terms
of getting the confidence they need, the experience they need to take a
full part in the global economy, create businesses that compete globally
and succeed globally, because it has distorted markets in Africa.
So the sooner Africa can graduate from its dependence on aid, the
better. Up to this end, aid will never help in reducing poverty among
African countries as the empirical results of this study confirm that,
Africa needs more than aid in order to reduce poverty and develop the
economy in the continent.

Conclusion

This study examined the impact of government spending,
economic growth, trade, foreign aid and foreign direct investment
on poverty reduction in Africa. The study covered the period from
1974 to 2013 using annual data from the World Bank and the United
Nation Development Program. The study used GMM technique in
order to estimate the impact of the mentioned variable on poverty in
Africa. The empirical results suggested that foreign direct investment,
economic growth, trade and government spending on education and
health positively and significantly related to the poverty reduction
during the period of interest, while foreign aid negatively contributed
to the poverty reduction in Africa. The results provided a valuable
policy implications for all African policy makers, it suggest that the
policy makers should introduce effective polices that enhance the
development activities and generates more economic growth, also,
attracting more FDI flows to come in the region. Further, targeting the
poorer areas by spending more in improving the education in those
areas, and developing and expanding the health' services which target
the poorer areas and poorer people.